What Do Business Owners Need to Know About Accounting for a Limited Company?


What Does it Mean to do Accounting for a Limited Company?

If you are a business owner, then you know all too well that you have what surely feels like million responsibilities and things to get done at any given time. As the owner, one of the most critical things that you can be doing for your business is making sure that you are keeping track of all of your company’s finances and assets properly. The fact is that if you are running a limited company, means that all of your business income, expenses, liabilities, and assets must be completely transparent and utterly traceable. In order for this to happen, this information must be accurately and adequately recorded every day. In other words, your company’s financial accounts must also be what is referred to as ‘true and fair.’ The term ‘true and fair’ means that all business records are not only kept in detail, with great transparency, but are also saved for at least six years after the accounting date after the year they are related to. It means that all paperwork needs to be detailed, accurate and complete. Some of the things that your financial records have to include are (but are not limited to):

  • Any and all funds that your business spends or receives.
  • Any and all assets that are under the businesses name.
  • All necessary information regarding any debts that the business owes
  • All necessary information regarding any debts that the business is owed.
  • Except for retail trade, who these goods were purchased from and who they were sold to.
  • A detailed Inventory of all stock that the company has at the end of the year.
  • All goods that were purchased and sold by the company.

These financial records will be used in order to complete annual accounts. It will also be used to file your Company Tax Returns, and when paying corporation tax on all of your businesses taxable income.

What Should I Know About Limited Company Statutory Accounts?

It is also important to note that there are what are known as statutory accounts, and these must follow what are referred to as either the United Kingdom Generally Accepted Accounting Practices or the International Financial Reporting Standards. Some of these practices include:

  • A detailed balance sheet. This means that it provides a detailed look of the monetary value of anything that the company owns or is debted on the final day of its fiscal year.
  • A detailed account of your company’s cash flow chart. This includes the details of things like your company’s sales, daily expenses, annual expense and the losses and gains it has made throughout the time period in question.
  • Any and all notes about the accounts – ideally with as much detail as possible.
  • The Director’s report.
  • The Auditor’s Report will also be required unless your business is exempted.

The good news is that if your business is on the smaller side and does not have a turn over that exceeds £6.5 million, you have the opportunity to file what is called abbreviated accounts. These accounts will only include a few things, as opposed to a more extensive and detailed list.

Did you know?  Dormant companies are also expected to prepare inactive company accounts. These files are not as extensive as others, but they do have to include notes and balance sheets. There is no need to file reports with the HMRC unless a business is deemed dormant after a certain time period.

What Happens with the HMRC if I File Late?

If you file late, the HMRC will use this information to figure out exactly how much corporation tax your business owes the government each year. It is critical to be aware of the fact that the deadline for paying this is exactly 9 months and 1 day after your company’s fiscal year ends. A lot of people are also unaware of the fact that this payment is due – in full –   before the time that your tax return is actually filed.

Should I do My Own Accounting?

For some, this might be a fair and honest question. Maybe you are great at math, or you have a degree in accounting – then yes, you probably can and should do your businesses taxes. But that isn’t always the case. If you really don’t know much about corporate taxes, the legalities of it or what forms are required you should probably let someone else handle it. Basically, it really comes down to your comfort level, if you are able to do your company’s taxes and regular accounting, there is no reason that you should not be able to meet all of these deadlines with the proper paperwork and accompanying documents. Thus, ensuring that you avoid incurring any penalties. If this is not something you are sure that you can do, or if you are not confident in your ability, it is strongly advised that you seriously consider using a tax professional or an accountant. While this may be an added and potentially unexpected expense, that you would probably rather avoid, hiring a tax professional who knows what they are doing in this area can save both yourself and your company from a lot of future financial frustration and stress. Remember, an upfront cost now can save you from a much greater cost – in terms of both time and money later on.

What Happens if My Business is Late Filing?

If you are late filing, there are a number of repercussions that both you and your business might face. These can range in from a small fine to being prosecuted and fined a substantial amount. Regardless of how tempting it can be to miss a tax deadline by even a short period of time while you deal with something else – let’s face it there is always something else that needs your attention. As the owner of your business it is your responsibility to ensure that all of the paperwork is filed properly and by the deadline in order to protect your business and everyone involved. (Tip: If being able to file on time is a concern for you due to scheduling or time constraints, you might want to consider hiring a professional in order to avoid any of these negative repercussions).

Some repercussions from filing your company’s taxes late might include:

  • Companies that file their annual accounts late can expect to be hit with financial penalties. These can be quite costly. It is essential to note that these fines will double if corporate annual accounts are late for multiple years.
  • If you do not file your taxes and take no steps to resolve the situation, you could face personal prosecution as well as a fine.
  • Additionally, the HMRC will potentially hit your company with an additional fine of that can range from £100 – 10% of any unpaid tax.
  • It should also be noted that in the case of tax returns that are late more than twice will receive a minimum monetary fine of £500.

What Should I Know about Corporate Tax and Company Tax Returns?

Your company’s accounting period will be the deciding factor as to what the deadlines are for filing Company Tax Returns and for paying corporation tax. Because this somewhat varies by company it is important that you are aware of what these dates are based on your specific fiscal calendar. This period will usually begin when your business activities commence, and it will typically end on the company’s ARD.

The fact is that your Company Tax Return needs to be filed within 1 year of the end of the company’s financial year. HMRC states that all Company Tax Returns to be sent online. You must include a CT600 form, which is for corporation tax calculations as well as full statutory accounts. Although the HMRC requires that this be filed online it is recommended that you keep a hard copy available for your own records.

It is also expected that you include any and all information about capital allowances, losses being carried forward, gains on assets, or directors’ loans. Remember, having as much detailed information as possible is great, and will help you should your company be audited in the future.

Regardless of whether you decide to hire an accountant or other tax professional, or you decide to file them yourself, it is critical that you keep detailed records of everything listed above for at least the 6-year window that you could be audited. Make sure that your files are accessible and organized to help yourself answer any questions that the government, shareholders or yourself might have at a later date. While things can easily get disorganized when running a business, this is one area where organization and being thorough is key.

Running a company comes with a never-ending to-do list, and it is not uncommon for things both big and small to fall through the cracks. If you are in the early phases of your limited company or still trying to figure things out there are fantastic resources available such as qualitycompanyformations.co.uk to assist you in not only reaching but exceeding your goals, while making sure that nothing gets missed.





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